Mom needs to be placed in care facility and apply for Medicaid. Do I have to use all money for mom's care?

Could you rent the house out? Would you want to? I think the first item of business would be to consult an Elder Law attorney.

She still has a mortgage and the insurance company is dropping her because the house has been unoccupied.

Medicaid recipients are allowed to own a house. They are not required to sell it to qualify for Medicaid. But, who is going to maintain the house, pay the taxes and insurance, etc? I assume that will be you. Be sure to keep meticulous records of what you spend.

The issue here is when the state needs to try to recover some of their expenses after Mom dies. What is likely to happen to the house then?

Although it is not necessary to have a lawyer help you apply for Medicaid, in this situation it might be worthwhile. You really want to know up front what will happen to your interest in the house. If you go that route, find an attorney who specializes in Elder Law.

You might first contact your state's agency on aging. I'm sure they can't give legal advice, but they might be able to answer a general question about this subject.

I am so sorry that you are losing your mother. May the rest of her journey be comfortable.